Given Assets Liabilities Reserves $ 500 $3500 Deposits Loans $3000

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Presentation transcript:

Given Assets Liabilities Reserves $ 500 $3500 Deposits Loans $3000 Required Reserve Ratio: 10%

a. How much is the bank required to hold as reserves given its deposits of $3500? $ 3500 x 10 % = 350

b. How much are its excess reserves? ER = AR – RR = 500 – 350 = $150

c. By how much can the bank increase its loans Increase by 150 in the total asset which is $3500.

d. Suppose a depositor comes to the bank and withdraws $200 in cash show the bank’s new balance sheet, assuming the bank obtains the cash by drawing down its reserves. Does the bank now hold excess reserves? Is it meeting the required ratio?

Assets Liabilities Reserves $ 300 $3300 Deposits Loans $3000 The bank does not hold excess reserves now. It is not meeting the required ratio. (300-330= -30) It can do the following: Borrow from another bank Borrow from the Bangko Sentral Force loan advance payment. Try to increase the deposits. Sell securities.